Mountain Law: Realtors have new power to collect unpaid commissions
Until recently, if a Colorado real estate broker earned a commission for finding a commercial tenant and the owner did not pay the commission, the broker was generally obliged to sue the owner personally to collect the commission (or, in the case of a broker working with the tenant, to submit the dispute to arbitration with the listing broker). A new statute effective in August will give commercial real estate brokers the power to encumber the leased property with a broker lien that can be foreclosed to recover the commission. Here is an overview of the statute.
1. Commercial Real Estate. The broker lien is available for commissions relating to leasing any real property except (a) residential property containing four or fewer units or (b) residential property leased on a unit-by-unit basis. To give a few examples, it appears the lien could be claimed for leasing a vacant lot, commercial condominium unit or commercial building, or water rights. It would apparently not be available for leasing a single residential condominium unit, a group of residential condominium units that are leased on a unit-by-unit basis, or a single-family home.
2. Written Agreement: The broker lien is only available if there is a written agreement between the broker and the owner giving the broker the right to a commission for leasing or attempting to lease the commercial real estate. A broker working with the tenant cannot claim a lien if the owner paid the commission to the listing broker (although the broker could still arbitrate the dispute with the listing broker).
3. Mediation. A broker cannot claim the lien unless the broker first delivers a request to the owner’s last known address asking to submit the dispute to mediation. If the dispute is not resolved within 30 days after such request, the broker can proceed with claiming the lien.
4. Notice of Intent to Lien. In addition to attempting to mediate the dispute, a broker must serve on the owner a notice of intent to record a notice of lien (“notice of intent to lien”) containing specified information. The request for mediation and notice of intent to lien can (and should) be combined into one document that is delivered to the owner personally or by registered or certified mail addressed to the owner’s last known address.
5. Record Notice of Lien. Thirty days after delivering the request for mediation and the notice of intent to lien, a broker can record a notice of lien in the office of the clerk and recorder in the county where the leased property is located. The lien cannot be recorded more than 90 days after the commission is earned or the tenant takes possession of the property, whichever is later. The lien becomes invalid if a copy of the recorded notice of lien is not sent to the owner by registered or certified mail within 10 days after it is recorded. If a commission is due in installments, the broker can record a new lien each time an installment comes due and remains unpaid.
6. Commence Lawsuit. The lien becomes invalid if the broker does not file a lawsuit to foreclose the lien within six months after the lien is recorded. Unlike some liens, the broker lien is not given any special priority by statute. That means the lien’s priority against other liens is based on the time of recording, and a broker lien will be junior to any existing liens at the time of recording (which has important implications for the foreclosure process).
The new broker lien law does not apply to all transactions … and brokers must carefully satisfy its requirements to enforce their lien rights … but, where the law is applicable, it may prove to be an important tool for commercial real estate brokers to obtain their earned commissions.
Noah Klug is principal of The Klug Law Firm, LLC, a general law practice in Summit County emphasizing real estate, commercial law and litigation. He may be reached at (970) 468-4953 or Noah@TheKlugLawFirm.com.
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